WASHINGTON -LRB- CNN -RRB- -- President Obama said Monday he will attempt to block bonuses to executives at ailing insurance giant AIG , payments he described as an `` outrage . ''

President Obama says AIG `` finds itself in financial distress due to recklessness and greed . ''

`` This is a corporation that finds itself in financial distress due to recklessness and greed , '' Obama told politicians and reporters in the Roosevelt Room of the White House , where he and Treasury Secretary Tim Geithner were unveiling a package to aid the nation 's small businesses .

The president expressed dismay and anger over the bonuses to executives at AIG , which has received $ 173 billion in U.S. government bailouts over the past six months .

`` Under these circumstances , it 's hard to understand how derivative traders at AIG warranted any bonuses , much less $ 165 million in extra pay . I mean , how do they justify this outrage to the taxpayers who are keeping the company afloat ? '' Watch why Americans have a right to be angry ''

Obama was referring to the bonuses paid to traders in AIG 's financial products division , the tiny group of people who crafted complicated deals that wound up shaking the world 's economic foundations . See a snapshot of facts , attitudes and analysis on the recession ''

The president said he has asked Geithner to `` pursue every single legal avenue to block these bonuses and make the American taxpayers whole . ''

Obama spared AIG 's new CEO , Edward Liddy , from criticism , saying he got the job `` after the contracts that led to these bonuses were agreed to last year . ''

But he said the impropriety of the bonuses goes beyond economics . `` It 's about our fundamental values , '' he said . Watch Obama say he 's outraged by bonuses ''

`` All across the country , there are people who are working hard and meeting their responsibilities every single day , without the benefit of government bailouts or multimillion-dollar bonuses . You 've got a bunch of small-business people here who are struggling just to keep their credit line open , '' Obama said .

`` And all they ask is that everyone , from Main Street to Wall Street to Washington , play by the same rules . That is an ethic that we have to demand . ''

Obama said he would work with Congress to change the laws so that such a situation can not happen again .

Then , coughing , he added in jest , `` I 'm choked up with anger here . ''

Republican Sen. Charles Grassley of Iowa did n't appear to be joking , however , when he spoke with Cedar Rapids , Iowa , radio station WMT .

`` I would suggest the first thing that would make me feel a little better toward them -LSB- AIG executives -RSB- is if they follow the Japanese example and come before the American people and take that deep bow and say , ' I am sorry , ' and then either do one of two things : resign or go commit suicide , '' he said .

`` And in the case of the Japanese , they usually commit suicide . ''

Under pressure from the Treasury , AIG scaled back the bonus plans and pledged to reduce 2009 bonuses -- or `` retention payments '' -- by at least 30 percent . That has did little to temper outrage over the initial plan , however .

Obama received support from fellow Democrats , including Sen. Christopher Dodd , chairman of the Committee on Banking , Housing and Urban Affairs . `` This is another outrageous example of executives -- including those whose decisions were responsible for the problems that caused AIG 's collapse -- enriching themselves at the expense of taxpayers , '' the Democrat from Connecticut said .

He noted in a written statement that executives at other companies that received bailout funds have volunteered to forgo bonuses . `` There 's no reason why those at AIG should n't do the same , '' he said .

Later , Dodd told CNN he is considering an unusual approach to get the bonus money back .

`` One idea we 're kind of thinking about is a tax provision , '' the Connecticut Democrat said . `` We have a right to tax . You could write a tax provision that 's narrowly crafted only to the people receiving bonuses . That 's a way maybe to deal with it . ''

Dodd said the notion is in the `` earliest of thinking '' and has not been settled on as a way to resolve the issue that has set off outrage in Washington and across the country .

In the House , Democrats are trying to shame AIG executives into forgoing the bonuses . They 're also investigating possible legal avenues Congress can take to force the company to return money used for bonuses , a House Democratic leadership aide and a House Financial Services Committee aide said Monday .

The committee is trying to determine whether Congress can force AIG to renegotiate the bonuses , which the company says it is legally required to give employees under contracts negotiated before the company received its first infusion of bailout dollars in September , according to the committee aide .

Both aides said it is unclear what authority Congress might have to force AIG to take back the bonuses .

Complicating the issue , said the committee aide , is that the first infusion of cash to AIG was authorized by the Federal Reserve before Congress passed the $ 700 billion bailout bill , also known as the Troubled Assets Relief Program , which included some restrictions on executive pay .

Liddy will face intense questioning about the bonuses when he testifies Wednesday before the House Financial Services subcommittee on capital markets .

On the floor of the Senate on Monday , Majority Leader Harry Reid , D-Nevada , issued a stinging rebuke of AIG , calling executive bonuses `` beyond outrageous . ''

`` Our financial sector will never heal unless the financial companies who helped create this economic crisis begin to regain the public trust . The actions of AIG do just the opposite , and every American is justified in their outrage at this breach of public trust , '' he said . Who 's insured by AIG ? ''

New York Attorney General Andrew Cuomo said in a letter to Liddy that was distributed to the news media that he was `` disturbed to learn '' of the bonus plan . And he threatened to issue subpoenas if the company failed to send him detailed information about who received bonuses and for how much . Read the letter to AIG -LRB- PDF -RRB-

`` Previously , AIG had agreed at our request to make no payments out of its $ 600 million Financial Products deferred compensation pool , '' he said .

He said he had already asked for the names and titles of the people who are to receive the payments , `` and it is surprising that you have yet to provide this information . ''

`` Covering up the details of these payments breeds further cynicism and distrust in our already shaken financial system . ''

He added that he also is seeking `` whatever contracts you now claim obligate you to make these payments '' and the names of whoever negotiated them .

`` Finally , we demand an immediate status report as to whether the payments under the retention plan have been made , '' he said .

The information was needed , he said , to determine whether bonus recipients `` were involved in the conduct that led to AIG 's demise and subsequent bailout '' ; whether the company is `` truly required '' to pay them ; whether the contracts `` may be unenforceable '' because of fraud or other reasons ; and whether `` any of the retention payments may be considered fraudulent conveyances under New York law . ''

CNN 's Elaine Quijano contributed to this report .

@highlight

NEW : Sen. Charles Grassley suggests executives follow Japanese model

@highlight

Sen. Chris Dodd suggests tax provision crafted toward recipients of bonuses

@highlight

House committee investigating ways Congress can force AIG to renegotiate bonuses

@highlight

Attorney General Andrew Cuomo threatens to issue subpoenas to AIG